Whether youre buying your first home or refinancing to take out more money, finding the best mortgage rates & terms is an essential part of securing a loan. Even a few percentage points can make the difference between being able to afford your monthly payments or paying tens of thousands of dollars more over time.
There are a number of ways you can save money on your mortgage rate, from lowering the interest rate youre offered to making other changes throughout the life of your loan. Weve rounded up some tips to help you get the most competitive mortgage rates possible.
1. Get a Fixed-Rate Mortgage
A fixed-rate mortgage offers stability for your monthly payment and overall interest costs over the life of your loan. However, it does come with a higher upfront cost and can be difficult to adjust for future economic changes. A better option is an adjustable-rate mortgage (ARM), which offers the same lower interest rate over the life of the loan but can have a lower initial rate and adjust to a higher one at specific times during the loans term.
2. Shop Around
Shopping around for a mortgage is the best way to ensure youre getting the lowest rate available. It can take a little time, but its worth the effort.
You can start by contacting several different lenders to see which ones offer the best mortgage rates based on your financial situation. Check with your local bank or credit union, as well as mortgage brokers and online lenders like LendingTree.
3. Improve Your Credit Score
Raising your credit score is an important step for any borrower, but it can be especially helpful when securing a low mortgage rate. You want a credit score thats 720 to 740 and above before applying for a mortgage, according to NerdWallet.
4. Select a Mortgage Type That Fits Your Needs
There are several types of loans that you can apply for when buying a home, including conventional and government-backed loans such as FHA, VA and USDA. Depending on your financial circumstances, each has its own set of requirements and features.
5. Choose a Fixed-Rate Mortgage
If youre a first-time buyer or planning to stay in your home for the long haul, opt for a fixed-rate mortgage instead of an ARM. A fixed-rate loan means that your mortgage payment wont change during the term of the loan, which can be a great advantage if you plan to move in a few years.
6. Boost Your Down Payment
A big down payment will help you qualify for a better mortgage rate, but if you cant put much money down on a home, its a good idea to boost your savings to cover the difference between what you can afford and what you can afford to pay.
7. Choose an ARM Thats Right for You
ARMs offer a lower initial interest rate, but they also have other features that can increase your monthly payment or trigger pre-payment penalties. Consult with multiple lenders and make sure you understand the risks of an ARM before signing on.